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Supply chains in need of greater costing accuracy, study reveals

Supply chain spend forecasts have to be far more accurate, a study has found

Costing accuracy within supply chains must improve, a study by APICS and IMA has revealed.

The results of a survey found that supply chain managers agreed, on average, that the benefits of improving their costing systems exceed the investment.

When asked what prevents them from utilising current costing information, 44% of supply chain managers cited a lack of operational data. Instead, costing information is often reported in exclusively financial terms, making it more difficult to leverage.

According to respondents, the secondary and tertiary barriers to useful costing information are inadequate technology and software (39%) and a resistance to change by accounting and finance personnel (30%).

According to the report, there are three root causes of why supply chain professionals are not receiving adequate costing information:

  • An overreliance on external financial reporting systems: Many organisations rely on externally-oriented financial accounting systems that employ oversimplified methods of costing products and services to produce information supporting internal business decision making.
  • Using outdated costing models: Traditional cost accounting practices can no longer meet the challenges of today’s business environment, but are still used by many accountants.
  • Accounting and finance’s resistance to change: With little pressure from managers who use accounting information to improve data accuracy and relevance, accountants are reluctant to promote new, more appropriate practices within their organisations.

The report details various steps supply chain professionals can take to improve costing systems within their organisations.

One strategy presented is for supply chain managers to strengthen their relationship with accounting and finance to foster greater information flow between the two departments.

Other solutions call for greater IT infrastructure and increased demand from top-level management for updated costing practices.

“Supply chain professionals rely on cost information when making decisions, but have indicated a need for that information to be more accurate and effective,” said APICS CEO Abe Eshkenazi, CSCP, CPA, CAE. “This report highlights the necessity for supply chain and finance departments to work more closely and adopt costing practices that are progressive and focused on informing internal decisions.”

The survey is part of an initiative by IMA’s Strategic Cost Management Task Force to improve costing practices by gathering feedback from professionals who use costing information.

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